DealLawyers.com Blog

Since we’ve blogged in detail here about all the drama related to bylaw amendments following universal proxy, here’s Liz’s post on the Proxy Season blog on TheCorporateCounsel.net related “fair elections” shareholder proposals:

In the wake of the SEC’s universal proxy card rules, some companies have been testing the limits on advance notice bylaws. If you go too far, you not only risk alienating your investors – you may also have to defend yourself in court. Meredith blogged about some of that back & forth last month.

Another consideration here is that this is a “hot topic” for shareholder proponents who are focused on corporate governance. Late last year, Jim McRitchie submitted this “fair elections” proposal to approximately 30 companies:

James McRitchie and other shareholders request that directors of [____] (“Company”) amend its bylaws to include the following language:

Shareholder approval is required for any advance notice bylaw amendments that:

1. require the nomination of candidates more than 90 days before the annual meeting,

2. impose new disclosure requirements for director nominees, including disclosures related to past and future plans, or

3. require nominating shareholders to disclose limited partners or business associates, except to the extent such investors own more than 5% of the Company’s shares.

A few of these proposals are currently expected to go to a vote in the upcoming weeks. Jim noted in a recent update that he’s also withdrawn several proposals – in exchange for an agreement from the company to add the following language to the corporate governance guidelines:

The Board is committed to providing a director nomination process that is fair and equitable to all nominating shareholders, and as such the Board will not, without shareholder consent, adopt any amendments to the Bylaws of the Company that would expressly (1) require nominating stockholders that are investment funds or other investment vehicles to disclose the identities of less than five percent stockholders, members, limited partners or holders of similar economic interests solely on account of such holders’ economic interests (so long as such holders do not have or share control over the nominating stockholder and are not participating in the stockholder’s solicitation of proxies), (2) require nominating stockholders to disclose plans to nominate candidates to the board of directors of other public companies, or (3) require nominating stockholders to disclose prior stockholder proposals or director nominations that such a stockholder privately submitted to other public companies.

If the Board, in its exercise of its fiduciary responsibilities, deems it to be in the best interests of the Company’s stockholders to adopt such provision without the delay that would come from the time reasonably anticipated to seek such a stockholder vote, the Board will either submit the advance notice bylaw to stockholders for ratification or cause the advance notice bylaw to expire within one year.

In this LinkedIn post, Jim also previews that he plans to reword this proposal to protect against no-action challenges, and recirculate it next year. Since it is often challenging to gather enough shareholders to pay attention to a bylaw amendment, if you are considering updating your advance notice bylaw, this may be a reason to take a look at it sooner rather than later.

– Meredith Ervine